10 U.S. companies paying the least—or no—taxes

As Washington tries to find its way out of increasing debt, the debate continues over whether American companies should pay more or less in taxes. Meanwhile, some of the largest U.S. public corporations paid no taxes at all for 2012. As a matter of fact, several of America’s biggest companies received tax credits that rose into the hundreds of millions or even billions of dollars. Losing money, or taking write-downs have become a sort of benefit for corporations. There are several ways a company can avoid paying taxes. One, the corporation loses large sums of money, and as a byproduct it pays no taxes or even gets tax credits. Another way to get federal tax benefits is through huge fines, mostly for illegal behavior, or behavior the government claims is illegal. Another way is through “acts of God,” such as damage from Superstorm Sandy. 24/7 Wall St. reviewed corporate tax payments for the top 150 companies by revenue. These are the companies paying the least—or no—taxes:

Reuters

Slide 2 of 12

10. Alpha Natural Resources

Income tax expense: -$550 million

Earnings before taxes: -$2.99 billion

Revenue: $6.98 billion

1 yr. share price change: -47.43%

Industry: Coal and fuels

Alpha
US:ANR
, a metal and coal mining company, made the mistake of buying peer Massey Energy for $7.1 billion. One of Massey’s mines collapsed in 2010 and killed 29 miners, the worst such incident in 40 years. Alpha was left with the bill for a $210 million settlement. Prices for the kind of thermal coal that Alpha produces are also low. Natural gas is often used in the place of coal, adding to the price pressures. These factors caused Alpha to book an asset impairment charge of over $1 billion and a goodwill write-down of $1.7 billion last year. The write downs triggered a $2.8 billion operating loss for the year. At least Alpha got a large tax benefit of $550 million.

Reuters

Slide 3 of 12

9. J.C. Penney Company, Inc.

Income tax expense: -$551 million

Earnings before taxes: -$1.54 billion

Revenue: $12.99 billion

1 yr. share price change: -58.05%

Industry: Department stores

J.C. Penney
JCP, -0.24%
took an odd path to its tax status. Management ruined the company by changing its merchandising approach. This caused same-store sales to drop more than 20% last year. Revenue from Internet sales fell even more. The fourth quarter was particularly brutal. Revenue dropped 25% to $3.4 billion, and the company posted a net loss of $552 million. Penney’s worst problems began when it hired former Apple retail chief Ron Johnson to run the company. What worked at Apple was not appropriate for a mainstream retailer which did not have products with near-infinite demand. One of Penney’s largest shareholders, Vornado Realty, dumped a large number of shares recently.

Reuters

Slide 4 of 12

8. AMR Corporation

Income tax expense: -$569 million

Earnings before taxes: -$2.45 billion

Revenue: $24.86 billion

1 yr. share price change: N/A

Industry: Airlines

AMR
US:AAMRQ
, parent of American Airlines, earned much of its tax credit by filing for Ch. 11 bankruptcy protection. The company should emerge from bankruptcy soon, as it merges with US Airways
US:LCC
Most of AMR’s losses, which reached $1.1 billion in the fourth quarter, came from the write-down of the value of its planes and property and because of high jet fuel costs. AMR missed much of the consolidation that went on in the airline industry during the last round of high fuel prices, which coincided with much of the last recession. Because AMR was tardy as a consolidator, it missed out on benefits which are often supposed to be part of airline marriage. United merged with Continental, and Delta with Northwest in an attempt to lower the number of planes they operate, the number of employees they need, and the number of routes they fly. A few years later AMR is getting its merger. However, it may have come too late for shareholders.

Lear Corp

Slide 5 of 12

7. Lear Corp.

Income tax expense: -$638 million

Earnings before taxes: $679 million

Revenue: $14.57 billion

1 yr. share price change: 22.88%

Industry: Auto parts and equipment

Lear Corp.
LEA, -0.68%
one of the largest suppliers of car parts, filed for Ch. 11 bankruptcy protection at the peak of the auto industry’s crisis, in 2009. Like GM and Chrysler, it emerged from bankruptcy quickly. Lear’s restructuring worked, and has even worked well enough to cause activist investors to seek board seats to force the company to distribute more cash. But the company’s success is relatively new. In 2010, Lear only made $461 million on $12 billion in revenue. Net income shot up last year to $1.3 billion, although some was due to a tax credits. Audit settlements helped drive the $638 million tax benefits as did valuation credits from operations in other countries.

Reuters

Slide 6 of 12

6. Verizon Communications Inc.

Income tax expense: -$660 million

Earnings before taxes: $9.90 billion

Revenue: $115.85 billion

1 yr. share price change: 23.96%

Industry: Telecommunication services

Verizon
VZ, +0.26%
is one of the most successful companies in America and the 15th largest in terms of total revenue. The company’s ancient landline business has continued to shrink as fewer and fewer people own home phones. But its cellular business, co-owned with Vodafone
VOD, +0.03%
has continued to grow, and it is now the largest provider in the U.S. based on subscriber counts. Verizon took a huge loss in the fourth quarter of last year. None of it had to do with day-to-day operations. The loss, rather, was the result of pension liabilities and the cost of Superstorm Sandy. Verizon is one of the few examples of how an extremely successful company can temporarily avoid paying taxes. At left, debris from Superstorm Sandy in the Queens borough of New York.

Reuters

Slide 7 of 12

5. D.R. Horton Inc.

Income tax expense: -$673 million

Earnings before taxes: $322 million

Revenue: $4.72 billion

1 yr. share price change: 58.50%

Industry: Homebuilding

D.R. Horton
DHI, +0.75%
operates in one of the sectors hardest hit by the recession—home building. The company lost $2.6 billion in 2008 and $545 million in 2009. Horton’s situation has improved substantially since then. Last completed fiscal year, the company had net income of $956 million on revenue of $4.4 billion. Donald R. Horton, chairman of the board, said when the company released results, “Our fiscal 2012 financial results reflect continued improvement in the housing market and in our company’s performance. Our fourth quarter pretax income of $99.2 million was our highest in 22 quarters and contributed to our fiscal 2012 pretax income of $242.9 million, the highest since fiscal 2006.” Horton’s tax situation was driven by “a reduction of the company’s valuation allowance for its deferred tax asset.” As such, the amount had no effect on the company’s operating performance.

Shutterstock

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4. Ameren Corp.

Income tax expense: -$680 million

Earnings before taxes: -$1.65 billion

Revenue: $6.64 billion

1 yr. share price change: 7.14%

Industry: Utilities

Ameren
AEE, +3.29%
the utility holding company, took huge write-downs last year on its merchant generation group, which marketed much of the power the company produced. Ameren said it would exit the business soon because the revenue it could get from power production was too low compared with the high cost of fuel. Ameren was fortunate recently to find a ready buyer in energy firm Dynegy
DYN, +0.66%
Among other benefits to the company, the sale, according to Reuters, “removes $825 million in debt from Ameren’s balance sheet and will create an estimated $180 million in tax benefit.” Beyond these problems, Ameren is a relatively successful company. In 2011, the year before it took the write-offs, the company had revenue of $7.5 billion and net income of $526 million. Revenue in 2012 was $5.9 billion. Without the $2.6 billion impairment cost associated with its merchant business, the company would have been profitable again. At left, the Dynegy power plant in Morro Bay, Calif.

Jason Patrick Ross/Shutterstock.com

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3. Caesars Entertainment Corp.

Income tax expense: -$871 million

Earnings before taxes: -$2.25 billion

Revenue: $8.59 billion

1 yr. share price change: 44.72%

Industry: Casinos and gaming

Caesars
CZR, +0.39%
the casino operator, is another example of a successful company that decided to write off some of its mistakes as well as the damage caused to its Atlantic City operations by Hurricane Sandy. Caesars also exited its attempts to enter the Biloxi, Miss. market. As a result, Caesars “loss from continuing operations net of income taxes” was nearly $1.4 billion. Because Caesars is so highly leveraged with debt, it would have lost money anyway. Last year’s interest expense was $2.1 billion, about the same as in 2011. Caesars is not growing, so it will have a challenge even with the write-downs it took in 2012. Last year’s revenue didn't grow significantly from the year before. Caesars continues to be challenged by several other gaming companies, including Wynn and MGM Resorts. Also, Caesars operations in Missouri, Indiana and Illinois have already suffered drops in sales. The one hope of expansion that Caesars anticipates is the legalization of online gambling in some of the markets in which it operates.

Reuters

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2. Bank of America Corp.

Income tax expense: -$1.12 billion

Earnings before taxes: -$3.07 billion

Revenue: $75.17 billion

1 yr. share price change: 50.68%

Industry: Financial services

Bank of America’s
BAC, -1.38%
tax credits are unique compared with other companies with large tax benefits. The bank settled a number of lawsuits with the U.S. government, most of which had to do with litigation over past home loan practices. Its 2012 settlement with the federal government over home loan foreclosure practices cost it $2.5 billion. Its settlement with Fannie Mae over troubled loans the bank sold to customers cost it $2.7 billion. Bank of America claims that these settlements put most of its problems behind it. When the firm announced full-year earnings, CFO Bruce Thompson said, “We addressed significant legacy issues in 2012 and our strengths are coming through.” The bank has also continued its restructuring in the wake of the 2008 financial crisis, during which it made the questionable decisions to buy broker Merrill Lynch and subprime mortgage firm Countrywide Financial.

Getty Images

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1. General Motors Co.

Income tax expense: -$34.83 billion

Earnings before taxes: -$28.70 billion

Revenue: $152.26 billion

1 yr. share price change: 9.91%

Industry: Automobile manufacturers

Unlike J.C. Penney, GM
GM, -1.25%
didn't receive its tax benefit because of operating success. The company received an “automotive interest expense,” tax credit from the government, which was related to impairment of assets and amortization. This and related write-offs mean GM may not have to pay federal taxes for several years. Absent the write-offs, GM has done relatively well recently. Revenue reached $152.3 billion last year, up from $135.3 billion in 2010. GM’s greatest challenge ahead is the losses in its European operations, which are made up mostly of its Opel and Vauxhall businesses. These losses have hurt global net income, offsetting some of GM’s success in the U.S. and China. GM has posted red ink in Europe for 13 straight years, and the car industry there is so troubled that there is no end in site. At left, the GM assembly plant in Lansing, Mich. Read more about the companies paying the least in taxes at 24/7 Wall St.

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